Top Investment Ideas for 2014

Joe McCann

The following picks are my investment ideas for 2014. Invest at your own risk. I'm not your financial advisor.

Also, I have no positions in any of the stocks or ETFs mentioned, although, I might very soon.

Stock - $JCP - Long

Not sure if $JCP is actually a "sleeper" considering how much it's in the news, but its current position in the market eerily reminds me of a one Best Buy at the end of 2012. People had left it for dead, it was heavily shorted, yet for 2013, Best Buy is up a whopping 240% YTD.

$JCP is approaching a 30% short interest and is down over 54% YTD. Bill Ackman, who was long up until August, capitulated his position and since then the stock has acted favorably whilst hedge funds have since loaded up on it. It is now one of the most heavily owned stocks by hedge funds with nearly 36% of all its float owned by hedge funds.

I like this trade purely on the contrarian nature of how it is so wildly hated and the recent price action in the stock over the past couple of months. When Goldman came out recently in December and voiced its concern that selling of additional clearance items and the elimination of some brands altogether would have a negative and deteriorating effect on margins at $JCP, the stock dropped 3%. However, the stock immediately rallied back the next day and has jumped an additional 12% since then. Call volume in the options pits are relatively bullish as well. Price action feels like it goes higher into 2014.

Other stocks I like long: $MSFT, $MU, $FB, $EBAY, $MGT

Stock - $PCY - Short

The hangover of the Federal Reserve's QE policy will be felt strongest in emerging markets, particularly those who have seen a significant rise in foreign capital inflows over the past five years. According to the McKinsey Global Institute, "Purchases of emerging-market bonds by foreign investors totaled just $92 billion in 2007 but had jumped to $264 billion in 2012."

With the Fed tapering imminent coupled with a bet on yields rising (even slightly), one has to risk manage the impact of either event and certainly both. My hypothesis is that redemptions by foreign investors in emerging market sovereign debt will increase in order to raise capital domestically if either event is triggered, be it rising yields or actual tapering policies, and hence my short call on $PCY, the ETF invested in the government bonds of 22 emerging market countries.

Other stocks I like short: $VJET, $TWTR

Private Company - Uber

Many are familiar with this company as well, but I believe Uber is still really early and has a ton of room to grow. The leaked info about their revenues is incredibly impressive: over $1 billion in gross bookings this calendar year alone. But this is only the tip of the iceberg.

Uber has the potential to become a massive realtime logistics platform for nearly anything. They have already nailed car services, but added on helicopters to The Hamptons, kittens, ice cream, mariachi bands, and even a toy drive over the holidays.

Uber is creating jobs. Loads of them and one has to consider the impact on the working class where Uber is providing drivers (and others in the service industry) means of additional or even full time income. The transportation lobby in many states and cities is aiming to fight Uber's encroachment on their turf, but that becomes a tricky political battle for any politcian that wants to take on a topic that is actually creating jobs. Uber clearly has a strong legal team and I wouldn't be surprised to see them actually spend money on lobbyists in DC in 2014.

Finally, Uber is actually impacting the psyche of consumers and their shopping habits particularly around fulfillment expectations. Uber is training our brains to reach for our phones and order up nearly anything at the moment we want or need it. Ebay, Amazon and Google are each trying to get out in front of this consumer behavior by launching their own same day fulfillment operations as well, but no one has executed as succinctly as Uber. Imagine a day where nearly anything can in fact be shipped to you in near realtime. This has potentially negative ramifications for UPS, FedEx and the USPS. Acquisitions of Uber's competitors in that space seem unlikely by the big three logistics companies, but there's no question they are on their radar as they are too monolithic to move and adapt to a realtime logistics platform like Uber, so growing via acquisition is the path of least resistance.

Tech Concept - Messaging Apps as Monetization Platforms

I wrote about how over the top (OTT) messaging apps were the new monetization vehicles for mobile six months ago, but wasn't aware of how quickly the messaging apps would start to impact media, content, games, ecommerce and even household appliances.

In short, OTT messaging apps aren't simply messaging apps, they are platforms to be leveraged in many other ways. From gaming to payment to celebrity content, the messaging apps have disrupted mobile messaging itself by creating a network effect of hundreds of millions of users inside the messaging app itself. The app is only the entry point to a platform of opportunity for brands, retailers, celebrities and of course users.

Line, a Japanese messaging app, has amassed 300MM users, has games, virtual stickers, has raked in over $160MM in revenue in Q3 of 2013 and is planning for an eye-popping $10 billion IPO. But they aren't stopping there. Recently they announced an in-app ecommerce offering to retailers to sell their wares directly to Line users, taking a 10% cut of the final transaction amount. Line recently launched a pop up shop at a mall in Indonesia selling plush toys and Line-related regalia which reminds me of the route Angry Birds took with licensing toys, video games and even films. Line is also getting into your home, literally, by now allowing you to control your LG home appliances directly from the app. So this messaging app now provides messaging, games, virtual goods, physical goods, branding and licensing opportunities and even home automation capabilities. Upside here is massive.

WeChat, a Tencent company, has also captured nearly 600MM users worldwide with just under half of those users actively using the app on at least a monthly basis. WeChat reported revenues of an a mere $630MM for Q3 of 2013. WeChat has capitalized on Tencent's payment mechanism allowing people to pay for physical goods, such as tea at McDonald's, or virtual goods, such as the wake up calls from Chinese celebrities. Seriously. WeChat also has WeChat-powered vending machines (there's the Tencent payment mechanism manifestation in the real world) and has now taken aim at your living room. WeChat is building a WeChat-enabled smart television and one can only imagine the possibilities of payment, messaging and a social network and loads of brands salivating to be a part of all of it.

It should follow that Snapchat's passing on $3 or $4 billion from Facebook and Google respectively, makes more sense when one compares them to Line, WeChat or any of the other successful messaging companies. The United States is way behind the rest of the world when it comes to messaging, but I'd expect that change, quickly, in 2014.

Tech Concept - Node.js

Last but not least is a technology that unless you are in fact a technologist, you may not be aware of its existence and its potentially massive disruptive capability.

Node.js, or Node for short, is an application runtime for creating data-intensive, realtime network applications. Node also runs on any modern operating system and has been embedded anywhere from Android devices to LG Smart Television sets. Node is also wickedly fast as its "engine" is the same engine in Google Chrome's web browser.

Enough with the technical jargon, why is it important? Companies are starting to rapidly adopt this technology as its performance metrics are simply to good to ignore.

Walmart.com, on Black Friday, it's most heavily trafficked day every year, saw 53% of its traffic flowing to its Node servers and not a single server went down. Not one. Moreover, CPU utilization (how hard the computer/server has to work) was near 1% the majority of the day. According to the lead engineer, "they were bored that day". The year prior, Walmart.com saw many Java (Oracle) servers crash repeatedly due to the inability to handle the traffic.

Paypal recently piloted a Node app alongside a Java version of the same app and saw astonishing results. The Java app took twice as long to build (with more engineers required). The Node version of the app handled double the amount of requests per second to each server and the response time was 35% faster than the Java counterpart. Since the success of this app, Paypal is now developing not a couple more, but a dozen new Node apps and all apps going forward will be based on Node.

Groupon recently switched from Ruby on Rails to Node and is easily serving 50,000 requests per minute and has seen "response times drop dramatically."

Mastercard is now leveraging Node to create a "cryptography as a service" capability for similar performance reasons.

So what does it all mean?

The unbundling of the enterprise software stack, dominated by Oracle via its purchase of Sun, is starting to breakdown. Loads of companies whom have been reliant on bundled hardware, software and managed services are shifting away from that model thanks to cloud offerings, SaaS products and now, an open source technology, Node, which empowers developers, allows for faster innovation and has performance and scalability metrics to back it up. The vendor lockin model that is synonymous with traditional vendors such as Oracle, SAP, Cisco, etc. is at risk as speed to market, scale and performance are more important than a "solution" by a single vendor. I expect Node to seriously mature as a first class technology solution in 2014 and will be evidenced by even greater adoption by IT organizations at companies worldwide.